Forex Success

By: Mel Joelle

Speculators involved in the foreign exchange (forex) markets can be likened to foot soldiers in a war. They are up against a powerful and extraordinarily liquid market, with trillions of dollars’ worth of foreign currencies flowing in and out daily. The primary purposes of the forex market are to finance international trade, allow speculation on exchange rate changes, and facilitate investing or doing business in foreign countries. Speculation in forex can be dangerous because of the risks involved and their magnification through leverage. To understand how this works requires some basic knowledge of foreign currency pairs and the structure of the forex market.

An exchange rate is the price of one currency in terms of another. This flows both ways. Two currencies valued in terms of each other produce two exchange rates, which are not always exactly the same. They tend to track one another closely, but sometimes there are significant gaps in their relative valuations. For much of the 20th century, exchange rates were fixed according to international agreements. Starting in the 1970s, exchange rates were allowed to float or change constantly in response to geopolitical events or shifts in economic conditions. The modern foreign exchange market was born out of this development and has continued to evolve ever since.

In practice, most exchange rates move only a few percentage points or pips per day. A pip is the smallest unit of exchange in the forex market; it represents 1/100th of one percent or $.0001 in terms of the U.S. dollar. To make a profit, speculators have to amplify the effects of these small movements. They do this by means of leverage. By borrowing money in the forex market, they can make bets on small movements that translate into big profits or losses. This is what makes forex trading so volatile for speculators. The smallest movement in the wrong direction can result in major losses for traders on the wrong side of a trend.

The forex market is a zero-sum game. For every trader that wins, there is a counter-party that loses. This is the essential structure of the forex market. Every currency is valued in terms of every other currency. In order to sell a currency, there must be someone who is willing to buy. In the midst of constantly shifting exchange rates, the organized chaos of the forex market makes losers and winners seem almost random. Nevertheless, there are strategies and tips to follow for successful forex trading.

Discipline is an important character trait for participants in any of the financial markets, not just forex traders. A good trader has the discipline to admit when he has made a mistake and take his losses in stride. Avoiding the extremes of greed and fear can be difficult, and a good run often leads to the perception of some advantage that other traders lack. This is the bane of all traders, and it ruins the ones who succumb to such thinking. Traders who are have a string of wins may simply be lucky.

To learn more about being successful in the forex market, be sure to check out Lucror FX today!

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